Consumer Spending Probably Helped Lift U.S. Growth

The economy in the U.S. probably expanded at a faster pace in the third quarter as a gain in consumer spending cushioned against a slump in business investment, economists said before a report today. Photographer: Patrick Fallon/Bloomberg

Oct. 26 (Bloomberg) -- The economy in the U.S. probably
expanded at a faster pace in the third quarter as a gain in
consumer spending cushioned against a slump in business
investment, economists said before a report today.

Gross domestic product rose at a 1.8 percent annual rate
after growing at a 1.3 percent pace the prior quarter, according
to the median forecast of 86 economists surveyed by Bloomberg.
It would be the first back-to-back readings lower than 2 percent
since the U.S. was emerging from the recession in 2009.

A housing rebound is helping mend Americans’ finances and
confidence, indicating the pickup in demand for expensive items
such as automobiles can be sustained. In contrast, manufacturers
like 3M Co. and Caterpillar Inc. have cut forecasts as concern
about the so-called fiscal cliff and cooling overseas sales
weigh on an expansion that Federal Reserve policy makers this
week called “moderate.”

“The consumer is keeping the economy afloat,” said
Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in
New York, and a former researcher for the Fed. “Capital
spending looks very weak. The economy is making slow progress
but at least it’s expanding.”

Today’s report will be the last reading on the state of the
economy before Americans go to the polls next month. Employment
and growth are central themes in the campaigns of President
Barack Obama and Republican challenger Mitt Romney ahead of the
Nov. 6 elections.

Jobs Report

The jobs data for October are scheduled to be released by
the Labor Department on Nov. 2. Payrolls rose 114,000 in
September after climbing 142,000 in August, while the
unemployment rate dropped to a three-year low of 7.8 percent
from 8.1 percent.

The Commerce Department will release the GDP data at 8:30
a.m. in Washington. Economists’ estimates for GDP, the value of
all goods and services the U.S. produced, ranged from 0.9
percent to 3.1 percent.

A report at 9:55 a.m. may show consumer sentiment climbed
this month to a five-year high. The Thomson Reuters/University
of Michigan final sentiment reading jumped to 83 in October, the
highest level since September 2007, from 78.3 the prior month,
according to the Bloomberg survey median.

Fed policy makers highlighted the advance in consumer
spending and slowdown in business investment in the Oct. 24
statement after their meeting. They pledged to keep buying $40
billion in mortgage-backed securities a month in a bid to spur
the three-year expansion and reduce joblessness.

Fed’s View

“Economic activity has continued to expand at a moderate
pace,” the Fed said. “Growth in employment has been slow, and
the unemployment rate remains elevated.”

The GDP data may show consumer spending grew at a 2.1
percent annual rate last quarter after a 1.5 percent pace from
April through June, economists predicted.

Retail sales in September and August had the best back-to-back showing since late 2010 as shoppers snapped up goods from
cars to Apple Inc.’s iPhones. Target Corp., the second-biggest
U.S. discounter, was among chains topping analysts’ estimates
for same-store sales last month.

Cars and light trucks sold at a 14.9 million annual pace in
September, the strongest since March 2008, according to Ward’s
Automotive Group. Chrysler Group LLC and General Motors Co.
reported gains.

Record-low mortgage rates are stoking demand for housing,
another area of the economy that’s improving. Firming home
prices and a drop in joblessness may further boost Americans’
confidence and spending.

Investment Slump

One area of mounting concern is business investment and
manufacturing. Data yesterday showed orders for non-defense
capital goods excluding aircraft, a proxy for future corporate
spending on items like computers, engines and communications
gear, stagnated in September and shipments fell.

Honeywell International Inc., a maker of turbochargers and
cockpit controls, cut its annual sales estimate on weaker demand
for aerospace parts and falling auto production in Europe.

“Turning to 2013, the clarity on the macro side is still
murky,” Honeywell Chief Executive Officer Dave Cote said on an
Oct. 19 conference call with analysts. “There’s nothing out
there to suggest anything but continued conservative planning at
best.”

Caterpillar, the world’s largest maker of construction and
mining equipment, this week projected sales growth for 2013 that
would be slower than the prior three years. Production has been
trimmed, with temporary shutdowns and dismissals to work through
excess stockpiles, the Peoria, Illinois-based company said.

Cutting Forecasts

Others who lowered profit projections include 3M, the
manufacturer of products ranging from Scotch tape to dental
braces, and DuPont Co., the most valuable U.S. chemical maker,
which also announced 1,500 job cuts.

Investors are growing concerned about the outlook. The
Standard & Poor’s 500 Index dropped on Oct. 24 to the lowest
level in seven weeks. It closed yesterday at 1,412.97, up 0.3
percent.

In addition to slowing growth from Europe to Asia that will
limit exports, the U.S. is approaching more than $600 billion in
tax increases and spending cuts set to take effect early next
year unless Congress acts.